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FEBRUARY 15 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FEEDBACK | SBG13
This was addressed to Professor
Patrick Watson, chairman of the T&T
Securities and Exchange Commission.
Formal complaint against TCL Board at
a special meeting of shareholders
Iam writing to lodge a formal com-
plaint about the conduct of the
chairman and board of Trinidad
Cement Ltd at a special meeting
of shareholders held on February
9, 2015 at the Trinidad Hilton. At
that meeting, the board arranged
a series of lengthy presentations
about the financial state of the company,
details of a restructuring plan, and particulars
about a proposed rights issue. Shareholders
had been given notice of a Special Meeting
to vote on the Special Business of removing
the 20 per cent limit on shareholding and
should have been provided---well in
advance---with as much pertinent informa-
tion as possible to be able to make an
informed decision. Specifics of my complaint
are as follows:
1. Lack of information and
shareholders muzzled:
As a former CEO and director of TCL, I
am in the unique position of being able to
critically assess the future plans of the com-
pany and help my fellow shareholders make
informed decisions about the company s
future. However, after surprising shareholders
with a lot of new information on a proposed
rights issue and restructuring plan, share-
holders were told that they could only speak
for two to three minutes on the issues before
voting.
I voiced my objection, which has been
captured in the local media and was told
by the chairman that I had "26 years to
comment on everything about TCL" so he
would not entertain any further comments
from me (the chairman s logic escapes me).
This is totally unacceptable and not in keep-
ing with the spirit and letter of the Com-
panies Act with regard to meetings of share-
holders, who must be given an opportunity
to participate in the governance of the organ-
isation.
Not only did TCL fail to provide critical
information to shareholders on a timely
basis (twenty one days for Special Business),
they added insult to injury by shutting down
commentary during the meeting to avoid
any criticism of their plans.
2. Shareholder approval required
for board's actions:
While the Companies Act gives directors
broad powers to manage a corporation the
Rights Issue proposed by TCL will increase
the issued share capital of the company by
50 per cent from 250 million shares to 375
million shares. This is a major change in
the capital structure of the company as it
has the potential to severely dilute the value
of existing shareholders.
In my view, such a move requires share-
holders approval.
Additionally, the TCL board announced
at the meeting an agreement with Cemex
to underwrite the rights issue and be granted
special rights to own 35 per cent of the
company if Cemex is not able to pick up
equivalent shares during the proposed rights
issue.
In my view, such an agreement must have
the approval of shareholders, as the board
is clearly giving preferential treatment to its
largest shareholder. It was also revealed at
the meeting that the board had approached
the SEC/TTSE to have these institutions
waive Cemex s obligation to make a manda-
tory bid to all shareholders on passing the
30 per cent trigger under the takeover code.
It seems to me that this is also a decision
that shareholders must approve as some
may wish to cash out via a mandatory offer
in accordance with the takeover code.
3. Favourable treatment to Cemex:
I have repeatedly complained in the public
media that the current board of TCL has
too many directors who are closely connected
to Cemex.
Apart from having three Cemex employees
on the board, Cemex s attorney in T&T,
Glenn Hamel Smith is a director.
Cemex employees hold the posts of acting
CEO and vice chairman. My concerns have
been dismissed, yet now we are seeing the
result of this domination by Cemex on the
board, as several initiatives are giving Cemex
preference over other shareholders.
Cemex has been selected to underwrite
the proposed rights issue, but we were not
told if there was any type of competitive
process. It seems that the consideration for
this is that Cemex be granted the right to
own a minimum of 35 per cent of the com-
pany, yet one has to question the board s
power to enter into such an agreement with-
out shareholder approval.
Are these arms-length transactions?
I am concerned about the governance
processes that were employed to come to
such a decision given the severe conflicts
of interest at board level. Did Cemex directors
recuse themselves from these decisions?
Were other proposals entertained from other
entities to underwrite the rights issue that
could have been more favorable to the com-
pany?
The current TCL Board is treating its
shareholders like a rubber stamp for its deci-
sion as it races to hand the company over
to Cemex while trying to create the impres-
sion that it is not systematically putting
Cemex in the driving seat. Cemex is being
given favourable treatment by a board that
it dominates, as it was "selected" to under-
write the upcoming rights issue and seems
now to have a guarantee to own at least 35
per cent of TCL.
The TCL Board has announced that it is
trying to get the regulators to waive Cemex s
obligation to make a mandatory offer to
remaining TCL shareholders on passing the
trigger of 30 per cent shareholding in the
company.
Yet, when shareholders are called to a
meeting, the Chairman seems to want to
take out his personal animosity against for-
mer directors and deny their right to speak.
One must remember that Cemex is an
organisation in dire financial troubles.
The company has recorded losses of
US$5.3 billion in the last five years (2010 to
2014). Cemex has not paid a dividend since
2008 and has a debt to EBITDA of over
5.19x.
Cemex has had a worse financial per-
formance than the previous---and much
maligned---board/management of TCL yet
the current board is welcoming Cemex with
open arms. It seems that the current board
has thrown governance to the wind and is
playing out its agenda to hand TCL over to
a company that itself could collapse finan-
cially in the near future.
Rollin Bertrand, PhD, DBA
TCL shareholder, former CEO and director
Former director of the T&T Stock Exchange
Much has been said that the huge debt
burden of Trinidad Cement Ltd (TCL)
is its main problem. And the new board
last Monday put it to its shareholders
that the way forward is to increase investment.
Let us first look at those lenders whose profile has
been high in the past two years.
Between 2010/11---during the worldwide economic
downturn---the lenders increased long-term debt by
$436 million to $1.6 million, increasing the gearing
to 207 per cent from 82 per cent. But the pre-tax
profit reduced by $111 million between 2008/9 and,
in 2010, there was a loss of $149 million. One must
marvel at the business case put forward by those
financiers who seemingly brought TCL to the brink
of insolvency.
Yet a closer look at TCL s results for the last year
in which audited financial statements are available,
ending December 31, 2013, reveals that the group s
real problem is its inability to generate sales adequate
enough to run the business and, more importantly,
create value for shareholders, the latter being the key
rationale for existence.
Firstly, between 2012 and 2013, there was a zero
effect in the cash flowing in and out from the man-
agement of trade debtors, inventory, and trade cred-
itors.
For 2013, the group earned $305 million if financing
charges (interest) are excluded. When non-cash depre-
ciation of $128 million is added back, and capital
expenditure of $74 million is deducted, the net surplus
is $359 million, sufficient to service the actual debt
payments (interest included) of $368 million.
However, there is nothing left over to:
a) fund any increased working capital or capital
expenditure requirements, a reality here since addi-
tional borrowing is highly unlikely, and
b) pay dividends to shareholders. Hence the pro-
posed share issue.
Suffice it to say, for the year 2012, the situation
was grim: net loss $344 million, $411 million worse
than 2013.
Pointedly, the improved performance in 2013 can
be traced directly to an increase of $326 million in
sales to $1.9 million, the same as 2007, which in unit
terms was even better in 2013.
In qualitative terms, the results of the group must
be viewed in the background of the delays in com-
missioning plant upgrades in Barbados and Jamaica,
and the aforementioned downturn.
The question facing shareholders---as they ponder
putting more money in at $2.90 a share---is not pri-
marily whether the board can negotiate more lenient
terms with its financiers, but whether it can---with
the blessing of Cemex---penetrate new markets and,
to a lesser extent, manage its costs, in particular, pro-
duction.
Johnson Singh
Orangefield Road
Carapichaima
The real issue
is sales volume
Former TCL head
files formal complaint